Successful Investing III: Highlights
Cover Story, by Mark Robertson, Managing Partner June 1st, 2021
We basically have One Job. It’s our mission to discover and share actionable ideas and then use those findings to demonstrate time-honored analysis methods and link them to portfolio design and management best practices. We nurture patience and discipline which manifests in diligence and vigilance. It’s at the core of successful investing.
Against the backdrop of an Omaha sky and following just a few weeks after the Buffett/Munger Berkshire Hathaway Quipfest (held in Los Angeles this year), we gathered once again to share long-term investing ideas.
We basically have One Job. It’s our mission to discover and share actionable ideas and then use those findings to demonstrate time-honored analysis methods and link them to portfolio design and management best practices. We nurture patience and discipline which manifests in diligence and vigilance. It’s at the core of successful investing.
Our gathering in May did not disappoint. The selections made one year ago delivered massive returns.
In a word, THANK YOU for your generous feedback and encouragement. As the accompanying recap of the last several months of our Bull Sessions suggests, we think we’ll keep doing Successful Investing events.
Successful Selections
Speaking of good stock ideas, the accompanying table provides the collection of stocks featured during panel session on May 14, 2020. One year later, the average total return was 86.9% — trouncing the Wilshire 5000 by 31.7% relative return percentage points.
More on the chosen companies shortly but the conference featured a session (read: reminder) about relevance of small company discovery. That pans out here with an average sales growth forecast of 15.5% for the May-2021 selections. Other sessions included a brief summary of portfolio design characteristics and targets and an assessment/update of the selling disciplines we’ve been exploring for the last several years. The session on theme-based or driven investment research included a tip of the sorting hat to Cathie Wood of Ark Investing and their flagship exchange-traded fund, Innovation (ARKK). Ark features disruptive technologies and invests with a time horizon comparable to our methods with an emphasis on growth and best-in-class enterprises. Cy Lynch added his customary reminders about the math behind it all — and keeping it simple. We spent a few moments with Ark’s Big Ideas (2021) and heartily recommend that all community members consider doing the same. Early stage investing can be a minefield and doing it with someone who’s been there before can be most rewarding and protective.
Stock Selection Panel Results vs. Wilshire 5000 (May 2020-May 2021). Pat Donnelly takes home top honors, but an average total return of 86.9% has generated more than a few smiles in our investing community. It’s a diverse group of panelists and ideas. Pressing on.
Promising Selections
These annual results are a really tough act to follow — but we’re willing to try. Our four knights of the Round Table and guest damsel Kim Butcher were joined by this year’s leader board champion, Pat Donnelly, and guest knight Matt Spielman, newly of Houston. Making her debut for the session is Charlene Hansen, model investment club advocate and education leader hailing from Elk Rapids, Michigan.
Greenbrick Partners (GRBK) acquires and develops land, as well as providing land and construction financing. The company is engaged in various aspects of the homebuilding process, including land acquisition and development, entitlements, design, construction, marketing, sales, and brand image creation. Its operating segments include Builder operations Central representing builders in Texas.
On April 30, Ardelyx (ARDX) fell almost 14% after the biopharmaceuticals company said the FDA extended the deadline for the agency to complete its review of the company’s tenapanor drug candidate to control serum phosphorus in adult dialysis patients by an extra three months until July 29. The treatment is working. This is likely not fatal for this community favorite non-core holding.
SoFi Technologies (SOFI) helps people achieve financial independence to realize their ambitions. Its products include SoFi Money, SoFi Invest, Student Loan Refinancing, Private Student Loans, Personal Loans, Home Loans, SoFi Relay, SoFi Protect among others.SoFi membership comes with the key essentials for getting ahead, including career advisors and connection to a thriving community of like-minded, ambitious people.
Yes, Emergent BioSolutions (EBS) is THAT vaccine producer. Worst to first?
Malibu Boats (MBUU) is a leading designer and manufacturer of power boats in the United States. MBUU is also among our selections for the Best Small Companies for 2021. It is the market leader in performance sport boats, sold under its Malibu and Axis brands. It acquired Cobalt Boats, a leading producer of sterndrive boats, in 2017, and Pursuit Boats, which makes high-end offshore and outboard motorboats in 2018. In 2021, it purchased Maverick Boat Group, a leading seller of flat fishing boats, with exposure to bay, dual-console, and center-console boats. Malibu has also expanded into boat trailers and accessories, and in 2020 began producing its own engines for its performance sport boats. Malibu’s target market includes a wide range of water enthusiasts who embrace active lifestyles.
When To Sell: An Update
We launched this exploration of Better Selling? and deployed the selling strategies across a number of real money and model portfolios a few years ago.
We’ve seen nothing that discourages us about the results.
In summary, we still believe in only three conditions for selling a position:
(1) Replacement. A position is sold and replaced in a transaction that improves either the overall return forecast (PAR), quality or average sales growth for the portfolio. We believe that our portfolios/dashboards speak to us — advising us on what-they-need so long as we’re willing to listen.
We also consider selling core holdings when their return forecast drops below money market rates and non-core holdings when they drop below average return forecasts (MIPAR).
(2) Based on the Rule-of-5, we’ve been setting aside, in true “time out” fashion, any stock that lags the general stock market by 20% or more. This one has “saved our bacon” more than a few times.
(3) We consider selling a stock that attains a relative strength index (RSI) of 80 — in an effort to avoid “roman candles.” The lower the quality rating, the more likely that we’ll take advantage of potential selling opportunities that meet this description.
Investors, start your Discovery engines.